The Walt Disney Company - Has Disney lost the Magic?

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Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).

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Disney over the Years

Disney was first set up as a studio to make animated films and commercials by Walt and his brother Roy Disney (the father of the present Roy Disney). The studio was the birth place of popular cartoon characters like Mickey Mouse and Donald Duck. The Disney studio also made animation adaptations of several well known fairy tales like Snow White, Cinderella, Sleeping Beauty and Beauty and the Beast. (Snow White was the first ever full length animation film).

In addition to animation films, over the years the studio had diversified into True Life Adventures (documentary films with background music) and live action films as well. It also received a number of Academy Award nominations for its work. The company which started out as a single studio later diversified into theme parks and television shows, which were also quite successful and made Disney a household name. Walt died in 1966, and after his death, his brother Roy Disney managed the company. However, after Roy Disney's death in 1971, troubles began to surface. Don Tatum (Tatum) became the chairman and Card Walker (Walker), the president of the company in the early-1970s. Ron Miller (Miller), Walt's son-in-law, became the executive producer.

The successors lacked the vision of Walt and Roy Disney and almost led the company to bankruptcy. They took several bad businesses decisions, which adversely affected the company. Initially, the company had planned to fund the development of a new theme park (which later came to be called 'Walt Disney World') completely with outside sponsorship. However, as the work progressed, some part of the company's internal surpluses had to be ploughed into the project. This led to a severe resource crunch. Another major problem cropped up in 1979 when, 14 of the company's best animators left it. In 1980, after Tatum retired, Walker became the chairman and CEO of the company. The Disney channel was launched in 1983, the same year in which Tokyo Disneyland was opened.

In 1983, Walker resigned from his post and Miller became the CEO. After just a month, Miller gave up his post to Ray Watson (a close friend and his right hand man in the company). These constant changes in leadership led to a steep fall in the company's share price. The share price fell sharply from $84 in 1983 to $45 in 1984. The lowered share price and the lack of stability in the top management resulted in a number of corporate houses attempting to take over Disney in the early-1980s.

Saul Steinberg (Steinberg), the chairman of Reliance Group Holdings Inc.³ Steinberg started making serious bids to acquire Disney stock. By April 1984 he had acquired 8.3% of the stock and announced his intention to acquire 25 percent of the company before long. Recognizing the threat, Disney management started making defensive moves. It announced its decision to buy back shares at a premium. Roy and Gold played a very important role at this stage and helped muster shareholder support to prevent Disney from being taken over.⁴ They enlisted the support of the Bass family, who were the largest shareholders in Disney, to regain a majority. Steinberg finally agreed to re-sell his stock to the company at a premium of $32 million and an additional $28 million for his expenses. All this added to the huge debt of the company. By the mid-1980s, what was needed was a change in leadership to bring about a turnaround.

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3] Reliance Group Holdings Inc. is a New York based company which underwrites a broad range of commercial property and provides personal-casualty and automobile insurance. It also provided information technology consulting services.
4] Roy joined the company in 1954 as an assistant film editor and took over as the chairman of the animation department in 1984. He became a member of the board in 1967. He met Gold in the late 1970s and made him his financial adviser. Gold was later nominated to the Disney board.